Greenspan hints at pre-emptive rate rise

THE US Federal Reserve may need to raise interest rates before any sign that inflation is returning to the economy, Alan Greenspan said yesterday.

With speculation still rife that the Fed will raise rates at its next meeting in two weeks' time, the Fed chairman appeared to be looking towards a reversal of the interest rate cuts last year which stoked the US recovery.

"It is useful to pre-empt forces of imbalance before they threaten economic stability," he said. "When we can be pre-emptive we should be, because modest pre-emptive actions can obviate the need for more drastic actions at a later date that could destabilise the economy."

Mr Greenspan, in testimony to Congress, said "developing imbalances" could cause problems for the economy, with the trade deficit widening and personal savings at new lows. The trade gap closed slightly in April to $18.94bn from $18.95bn in March, the Commerce Department reported yesterday. The figures showed the first increase in US exports since last October. But the deficit is still heading for another record this year, after last year's revised $164bn.

Markets are expecting at least one increase in rates this year, although they are also speculating that the Fed will move again later in the year. So widely discounted is the rise that although stocks fell at the opening of the New York Stock Exchange yesterday, they rose afterwards and bonds rallied.

Mr Greenspan again pointed to concerns about the ability of the US economy to maintain its momentum when unemployment is at such low levels. "To be sure, labour market tightness has not, as yet, put the current expansion at risk," he said. "But should labour markets continue to tighten, significant increases in wages, in excess of productivity growth, will inevitably emerge." Monetary policy operates with a significant lag, he added.

The latest weekly figures for the labour market showed a large drop of 28,000 in those seeking unemployment benefit. A Fed survey of local conditions showed growing labour market tightness and wage pressures

Lawrence Summers, nominated by President Clinton as the new Treasury Secretary, told Congress in separate testimony that he would not change the policies of his predecessor, Robert Rubin.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test